Offshore dock

Aerial view of the offshore dock for ships at the Dominion Cove Point LNG facility on the Chesapeake Bay. (Kim Hairston, Baltimore Sun / February 3, 2012)

For four decades, the owners of the liquefied natural gas terminal at Cove Point in Calvert County have given a pair of environmental groups a say over expansion of the sprawling complex, originally built to import fuel from abroad via the Chesapeake Bay. By all accounts, it's been a cordial, cooperative relationship.

Now, though, that almost unheard-of pact between industry and its traditional adversaries is being tested, as the terminal's owner, Dominion Cove Point LNG, seeks federal approval to export liquefied natural gas through the terminal to lucrative foreign markets in Asia and elsewhere.

The company, a subsidiary of Dominion Resources Inc., based in Richmond, Va., is scheduled to square off early next month in Calvert County Circuit Court with the Maryland chapter of the Sierra Club over whether the company's export plan violates the terms of its long-standing deal with the club and the other environmental group, the Maryland Conservation Council.

Converting the terminal would be a huge boon to the local and state economy, said company executives, who plan to spend more than $2 billion building a natural gas liquefaction plant and making other changes to handle exports. The construction would employ nearly 3,000 workers, and 70 full-time jobs would be created to operate the facility, said Mark Reaser, director of LNG operations at the terminal. The upgraded facility also would yield up to $40 million a year in tax revenues for Calvert County alone, he added, while helping ease the nation's trade imbalance.

"It truly is a win-win proposition across many areas," said Donald Raikes, Dominion's vice president for marketing and customer service.

But Sierra Club representatives say they won't go along with the plan because they're worried about the impacts of liquefying gas and loading tankers on surrounding residents and the ecologically significant marsh on the terminal property. They also object because the converted terminal would be used to export natural gas from Pennsylvania and West Virginia that would be extracted using hydraulic fracturing, or "fracking," as it's commonly known.

"We are concerned about any project that would incentivize a practice that right now is an item of big concern," said Josh Tulkin, Sierra's state chapter director.

Environmentalists say there's evidence that fracking — in which large amounts of water, sand and chemicals are pumped underground to extract natural gas — is contaminating residential wells, and polluting streams and the air. The gas industry says such complaints are unfounded and that any problems related to "fracking" are isolated cases.

In court filings, the company argues that it doesn't need the environmental groups' OK to build a gas liquefaction plant and make other changes at the terminal because it doesn't plan to expand its facilities beyond the current fence line.

In interviews, Dominion executives say their company shouldn't be dragged into the fracking debate because it's merely transporting the gas, not extracting it.

The Department of Energy already has approved exports of up to 2.2 billion cubic feet a day through a Gulf Coast terminal in Texas, and it is weighing bids from eight other terminals on the Gulf and Pacific coasts. Cove Point is the only East Coast site. Assuming it can get federal and state approvals in the next two years, the company hopes to start exporting by 2017.

"Somebody's going to do it, whether it's Cove Point or not," said Dominion spokesman Daniel Donovan. "So why should the state of Maryland suffer? Southern Maryland, Calvert County can benefit."

Dominion already has authority to export LNG through Cove Point to all nations with which the United States has free-trade agreements. The company is seeking federal approval to ship up to 1 billion cubic feet daily to virtually any corner of the world, except for those few countries under trade restrictions, such as Cuba and Iran. Dominion officials say they've negotiated long-term contracts with two customers to supply them 750,000 cubic feet a day — one of the customers would supply Tokyo Gas.

Fracking wasn't an issue when the original deal to build Cove Point was struck in 1972. The terminal's original owner, Columbia Gas System, reached out then to environmental groups opposed to building the facility.

Columbia pledged to preserve most of the 1,017-acre tract untouched, setting aside the bay beach and one of the state's largest freshwater marshes, which harbors several rare and even endangered plants. More importantly, the company agreed to limit its ability to expand operations beyond its 134-acre fenced-in processing complex without the groups' approval.

Sierra's Tulkin said Dominion has been a good steward of the property outside its fenced complex. The company has donated $125,000 a year to a local land trust for environmental education and preservation efforts, and doubled that to $250,000 in recent years. It also spent millions — it won't say exactly how many — on a project to restore the freshwater marsh after it was damaged by a storm several years ago.

"We've tried to be friends with the environment," Donovan said.

The agreement between the environmental groups and the terminal owner has been revised and rewritten several times over the years, as ownership changed hands twice. The most recent rewrite occurred in 2005 to accommodate some terminal upgrades.

"When we did this deal with them back in 2005, no one was thinking export," said Craig Segall, a Sierra Club attorney. "We were doing a minor expansion for import, and we thought that was it."